Investing In A Giant


Nigeria has a population of over 160 million (the largest in Africa) and in 2014 following a rebasing, GDP was announced at over $500 billion (NGN90 trillion) making it the […]

Nigeria has a population of over 160 million (the largest in Africa) and in 2014 following a rebasing, GDP was announced at over $500 billion (NGN90 trillion) making it the largest economy in Africa. This continuously expanding consumer market has made it an investment destination of interest to foreign investors for some time. In addition, after many years of military government, democratic civilian rule was reestablished in 1999. Since then the efforts of the government towards entrenching the rule of law may have improved the country’s political risk profile. Potential investors also see the country’s relatively low corporate tax rates and liberal foreign exchange regime as attractive incentives for doing business in Nigeria, in spite of tremendous infrastructure challenges and the multiplicity of taxes at the different tiers of government, which can make running a business in Nigeria quite demanding. Conversely, the infrastructure deficits do present great investment opportunities. So, for example, private investors have grown the telecoms industry from less than a million lines in 1999 to over 100 million lines today.


The most common form of corporate business organization is the private limited liability company. This must not have more than 50 shareholders and must restrict the transfer of its shares. There is also the public limited liability company (plc.), which can have any number of shareholders. This is the required form for companies listed on the stock market. The unlimited liability company is also an available form, but is rarely used.


Profits of Non-Nigerian companies are taxable in Nigeria to the extent that they arise, or are deemed to arise, in Nigeria. The profits are subject to either of two corporate income taxes: the companies income tax (CIT) or the petroleum profit tax (PPT). The CIT is chargeable at the rate of 30% on the profits of all companies apart from those engaged in oil exploration and production. The PPT on the other hand, which is chargeable on the profits of any company engaged in the exploration and production of petroleum (or crude oil) ranges between 50% and 85%. In addition to income taxes, Nigerian businesses are also subject to value added tax (VAT) and capital gains tax (CGT).

VAT is levied at a rate of 5% on the supply of all goods and services with a few exceptions. Usually this is collected by the supplier and remitted to the tax authority, but where the supplier is a foreign company or the purchaser is an oil-producing company, or government institution, the purchaser withholds and remits the VAT to the tax authority.

CGT is charged on the gains arising on the disposal of an asset at the rate of 10%. Gains applied toward replacing business assets are exempted from CGT, as are gains arising on the disposal of stocks and shares, and those arising from a takeover. On the other hand, gains arising from a demerger or spin-off are not exempted even where assets have been moved to entities under the same control and ownership as the transferor.

Every Nigerian company pays education tax of 2%. This assessment and payment is done together with the assessment and collection of the companies’ income tax or petroleum profits tax, whichever is applicable.


Various tax incentives exist for companies seeking to invest in Nigeria. Under the Industrial Development (Income Tax Relief) Act a company engaged in any pioneer industry listed in the Act is entitled to exemption from company income tax. Exemption under the Act can be for a period of up to 5 years.

Similarly, the Venture Capital (Incentives) Act provides for tax incentives to venture capital companies investing in venture capital projects where such company provides at least 25% of the total project cost. Such incentives include a 50% reduction of the withholding tax payable on dividends distributed by project companies, allowing equity investments in venture project companies to be treated as qualifying capital expenditure, and exempting capital gains on disposal of such equity from tax.

Capital allowances are another from of tax incentive. Capital allowances are granted on the acquisition of qualifying capital expenditure that is used solely for the purpose of a business. Capital allowances reduce the taxable profits of a company. The Companies Income Tax Act provides for initial and annual allowances. The initial allowance is claimed only in the year the asset was acquired, while the annual allowance, based on the remainder after deducting the initial allowance from the cost of asset is spread over the tax life (including the first year) of the asset until the cost of the asset is reduced to a book value of 10 naira.

Under the PPT Act annual allowance is 20% on a straight-line basis. Additionally, a petroleum investment allowance (PIA), which allows an uplift of up to 20% on qualifying capital expenditure, is available as an incentive to encourage investment in offshore exploration. In addition to the PIA and capital allowances, there are further incentives for companies operating production-sharing contracts in Nigeria’s deep offshore and inland basin regions. Under the Deep Offshore and Inland Basin Production Sharing Contracts Act, parties to a production-sharing contract (PSC) signed before 1 July 1998 are entitled to an investment tax credit (ITC) equal to 50% of annual qualifying expenditure. Parties to a PSC signed after 1 July 1998 are entitled to an equal investment tax allowance, which is calculated in the same way as the ITC. The ITC operates as a full tax credit, while the ITA is deductible from profits before the calculation of tax.

In order to stimulate financial markets, the federal government has since 2012 amended relevant laws to exempt from taxation income earned from debt instruments. Consequently, income from bonds issued by sovereign or sub-sovereign entities and those of corporate bodies are exempted from tax in the hands of the bondholder. In addition, the government has increased the tax relief available to companies that incur expenditure on infrastructure or facilities of a public nature. Such companies will now enjoy 30% uplift in basis for deductibility of the relevant expenditure.


Nigeria has entered into double taxation treaties with around 15 countries. These include the UK, France, Belgium, Pakistan, Romania, Canada, Czech Republic, Slovak Republic, Netherlands, Philippines, South Africa, Italy, Kenya, Sweden, and China. Residents of these countries enjoy a preferential withholding tax rate of 7.5% on payments of interest, rents, royalties, and dividends. Nigeria’s double taxation treaties employ the credit method for the elimination of double taxation.


Pursuant to the provisions of the Foreign Exchange (Monitoring & Miscellaneous Provisions) Act 17 of 1995, investors are free to repatriate their profits and dividends net of taxes through any authorized dealer in freely convertible currency, provided that the investor imported the capital through an authorized dealer and obtained a Certificate of Capital Importation.


Furthermore, the enactment of the Export Processing Zone Act makes the Nigerian economy more attractive to foreign investors. Benefits accruable in the Zone include free repatriation of foreign capital investment with capital appreciation of the investment, offshore remittance of profits, rent-free land at the construction stage and 100% foreign ownership of businesses in the Zones.


The Nigerian Investment Promotion Commission Act establishes investment protection assurances that no enterprise shall be nationalized or expropriated by any Government of the Federation unless in the national interest and upon the payment of fair and adequate compensation.


By virtue of the Nigerian Oil and Gas Industry Content Development Act, a company in the oil and gas industry having 51% Nigerian ownership would usually be given preference for the awarding of contracts.


Nigerian companies with foreign shareholders must register with the NIPC and obtain a certificate of business registration before commencing business.


A foreign company is required to register with the Ministry of Interior and obtain a business permit. A Business Permit is a permanent approval granted to a company with foreign shareholders to carry on business in Nigeria. Such company needs to obtain an expatriate quota to employ foreigners.

Non-Nigerians seeking employment in Nigeria are required to obtain work permits. Work Permits in Nigeria will generally be granted once the applicant can demonstrate that a Nigerian does not have the requisite expertise. Nevertheless, the Nigerian Oil and Gas Industry Content Development Act provides for training and a succession plan for Nigerians into positions being occupied by foreigners in the oil and gas sector.


Nigeria is fast becoming a commercial hub, and its fiscal and non-fiscal incentives have encouraged foreigners to invest in the Nigerian economy.

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